On 1 March 2019, at the start of the new tax year, National Treasury introduced a number of new rules and regulations for retirement funds.
One of the new rules states that retirement fund members should receive retirement benefit counselling before they retire. This should happen at least three months before retirement, although the Financial Sector Conduct Authority (FSCA) suggests counselling five years as well as one year prior as well.
It is important to keep in mind that the counselling should be provided by your retirement fund, the fund’s administrator or a specialist appointed by the retirement fund and that it should be done free of charge to you as the member.
This counselling is by no means financial advice and it should never be used to coerce you into buying a retirement product. What the counselling should do, is at least give you a better understanding of the fund’s performance in the last year. The counselling should also touch on the availability of a default option if you are unsure of what to do.
The so-called default option is another of the new rules introduced for retirement funds. In short, it says that each fund should have a standard option that is available to you if you cannot decide on how to invest your retirement funds.
There are specific rules for default options, including that it should not cost too much and that you should still opt for it in writing, even if it is called a default option. Many default options comply with Regulation 28 which limits offshore exposure to 30% and equity exposure to 75%. These limits could limit the growth potential of your retirement portfolio.
From our experience, many people on the cusp of retirement think their retirement is taken care of thanks to the pre-retirement counselling and the default option. Unfortunately, as is the case with so many “default” options, these regulations cannot cater to each person’s specific financial and life needs. This means that you are probably not getting the best possible retirement benefits if you pick the default option.
At the same time, we have found that much of the pre-retirement counselling that is available to people who are preparing to retire is very generic and simple. This is not because the counsellor is lazy or malicious, but they are required to provide generic counselling that can be given to blue- and white-collar workers alike, and that this does not constitute financial advice.
With this in mind, we always advise people on the cusp of retiring to seek out professional and independent financial advice and to do so well in advance of retirement.
A CERTIFIED FINANCIAL PLANNER (CFP) accredited independent financial adviser will not only be able to provide you with personal financial advice, but can give you greater access to different retirement products and options and will help you make a better decision for the short and long term.